Stock Update
Corporate Actions
Australia

Event Trade: Credible Labs (CRD:ASX)

8 Oct 2019
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The CRD Event trade was first recommended as a buy on 05 August 2019. Below are each of the updates related to this trade in chronological order.

Current advice: This trade is now closed. We bought at $2.19 and sold at $2.21 for a return of 0.9% in approximately three months.

Update – 16 October 2019, 11:01am

CRD has ceased trading after the shareholder meeting to vote on the merger with Fox saw shareholders support the $2.21 offer. Shareholders should now receive payment in the next week or so which will bring to a close what has been an underwhelming investment. We had hoped to see competing interest in CRD but unfortunately nothing else eventuated but making an arbitrage of 1% in roughly three months isn’t a terrible outcome when the risk of the investment was so low. These takeovers are a numbers game as the only way to get into the big profits is by investing in all of them – most will be boring, but the great ones ensure our long-term returns are excellent with next to no volatility.

Update – 02 October 2019, 10:26am

Things have been very quiet since we recommended CRD, and with the Nasdaq well off its highs as well as continued trade jitters the environment for a bidding war has certainly not been kind. As time passes our hopes of a competing bid will fade, but at least our worst-case scenario is a small profit and we must go through the process to ensure the offer from Fox Corp on the table will succeed if we see no further action.

Members should by now have received the documentation for the upcoming shareholder vote on the deal. Votes are due in by next week (10 October at midday) and the meeting is to be held on 15 October. To vote, one can visit www.investorvote.com/CRD and you will need your HIN which is shown on your proxy form. We recommend members vote ‘FOR’ all proposed resolutions and we will update members once the vote has been held. Hopefully, we see another offer between now and then, but if not we expect to see the deal overwhelmingly supported.

Original Recommendation – 05 August 2019, 11:05pm

CRD is a San Francisco based fintech with a listing in Australia. The company announced this morning that it had signed a merger implementation agreement with Fox whereby Fox would pay shareholders $2.21 per share. Major shareholder Stephen Dash will roll his 33% of his 43.5% shareholding into a new venture with Fox effectively replacing other shareholders, and he will continue to remain as CEO. This suggests Fox is happy with the job Mr Dash is doing and the pathway the company is on, and implies the CEO and founder saw enough further upside in the company to keep the majority of his shareholding.

Considering the conditions attached to this deal, it looks a good bet to complete without any competing offers but given the dynamics of this bid we certainly wouldn’t rule out some competition. Firstly, CRD was not entertaining offers publicly so this offer would have taken those in the market by surprise. Fox has not bought an initial stake so there is no reason a white knight bidder couldn’t topple the current offer. While Fox has incredibly deep pockets, the offer is only worth roughly $200m so there may be a number of other companies with deep enough pockets to make an offer. And as far as tech names go, the 10 times revenue multiple is not out of this world, so the offer isn’t a knockout bid. Additionally, the premium is skinny compared to recent trading levels and we wouldn’t be surprised to see some institutional shareholders agitate for a higher offer.

The only problem is liquidity so it may take us a few days to get set. There has been over $2m worth of stock traded this morning so we should be able to get set with patience. We are therefore recommending members buy CRD at no higher than $2.19 for a short-term, low-risk investment.

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